Technology Strategy Recap and Summary

Technology Strategy Summary of the course This course provides you with a framework for the strategic management of technology businesses Technology businesses • Complex • Dynamic - and unstable • Uncertain • Co-evolution of technological innovation, demand opportunities and business ecosystems • Value creation and value capture This course • Ways of thinking • Mental models • Bring clarity to complexity • Insights and anticipation • Better decisions • Improve (significantly) the odds of success It is focused on domains in which systems are important • Products part of larger and more complex systems • Computing • Communications – mobile – IP • Consumer electronics • Industrial networking • Automotive • Aerospace • Products are comprised of multiple (sub-)systems • ...not so much biotech or pharmaceuticals The process of theory-building Theory is a statement of what causes what, and why. The lenses of other disciplines ict ess Pr oc ve cti du ess De roc eP Categorization tiv uc Ind rm nfi Co Theory ed Pr Anomaly Observe, describe & measure the phenomena Nested research designs: the phenomena within the phenomena What is business strategy? • Pursuing choices amongst competing options – a different system of activities that creates unique value and captures it – not operational effectiveness or improvement • Planned and intended, pursued and realized – deliberate – emergent • Pattern recognition – building the prepared mind – capable of making sound decisions Technology strategy (very often) determines who survives and thrives • IBM (mainframe computers) • Sun Microsystems • Matsushita, and many others (VHS) • Sony (transistor radios) • Nikon (in semiconductor capital equipment) • Canon (in photocopiers) • Canon, Nikon and others • Nokia • DEC, Wang, Unisys and many others • Apollo Computer and others • Sony (Betamax) • RCA • Cobilt, Canon, Perkin-Elmer and GCA • Xerox • Polaroid and Kodak • Motorola A roadmap of the course A: Innovation, B: Diffusion and Creating Transitions Value C D Capturing Deciding Value and Delivering Demand opportunity Co-evolution, life-cycles, eras and transitions Technologies and innovation Business ecosystems, niches and co-opetition Value capture, standards and modularity Ambiguity and scenarios, uncertainty and real options Technologies and technological innovation • Technologies emerge – can be push - supply, driven by new knowledge - or pull - demand, driven by demand opportunity • Learning takes place – either or both of over time, or as a result of accumulated experience – driven by what’s possible - technological feasibility - and by what’s worthwhile - commercial viability • Over time, performance improves and unit costs fall – along which parameters – at what rate – locally, or causing system change Technology envelopes and trade-offs Parameter x Trade-off Parameter y Technologies are characterized by performance envelopes, the limits of what can be done with them, and the trade-offs amongst parameters for them Different technologies have different envelopes and trade-offs Technologies compete with each other for potential applications • At any time, there are typically a range of competing technologies that are candidates for each application • Each of these technologies can be characterized in terms of its key parameters • Each technology typically has a performance envelope, which defines the trade-offs inherent in the technology • Over time, technologies follow an innovation trajectory, a vector or function that describes how they have evolved and may evolve, either over time or in response to effort invested in their development – rate of change – direction Innovation trajectories Penetration Performance tends to be ultimately constrained by physical limits although these may be a long way off, or not relevant to what customers want done Time Innovation trajectories Performance Performance is often a non-linear function of effort invested, with rapid progress during rapid growth, slow improvement in maturity, and sometimes slowdowns Cumulative Effort S-curves in the rigid disk drive industry 60.0 50.0 40.0 30.0 100.0 70.0 40.0 20.0 Areal Density Areal Density 20.0 10.0 7.0 4.0 2.0 1.0 0.7 10.0 7.0 4.0 2.0 1.0 0.7 0.4 0.4 0.2 0.2 0.1 70 72 74 76 78 80 Time 82 84 86 88 90 0.1 400 700 1000 2000 4000 10,000 20,000 40,000 $100,000 Cumulative Industry Revenues as Proxy for Engineering Effort Within this smooth overall progression, individual businesses went slower or faster 40 30 20 Fujitsu Areal Density 15 10 8 6 5 4 Control Data 3 2 1 76 77 78 79 80 81 82 83 84 85 86 87 88 (Densities in Millions of Bits per Square Inch) The rate at which performance improves can vary dramatically Yearly Improvement Index Performance Improvement 100,000 90,000 80,000 100 90 80 70 60 50 40 30 20 10 0 PCs Digital cameras Personal stereos Vacuum cleaners 0 1 3 5 7 9 11 13 15 17 19 21 Years from Product Launch Technologies: summary • Characterized by parameters – envelope – trade-offs • Improve in performance – over time – through learning – as a result of investment – along an innovation trajectory Users’ needs are diverse, and they change over time, and in response to technological innovation • Heterogeneous - actual or potential users and customers have a range of different needs - jobs they want done and value they put on getting those jobs done – may be related to demographic characteristics – but not necessarily, so that in many cases other bases of segmentation may be more useful • Exogeneous - what users and customers want changes over time in response to, amongst other things, their own changing circumstances and broad societal shifts • Endogeneous - users and customers’ beliefs and behaviour also change in response to technological innovation - new possibilities But it’s not easy to get them to adopt novel products that embody innovative technologies • Most customers most of the time are loath to change their behaviour – requires investment of time and effort – involves uncertainty and can induce anxiety • And are (necessarily) unfamiliar with novel products • Novel products almost always involve trade-offs • They evaluate products based on perceived value, relative to products they already use to do a job, and are overly sensitive to dis-benefits - “loss aversion” • At the same time, businesses (full of technologists) tend to underestimate the switching costs, and overestimate the potential benefits So we find ourselves with eager sellers and stony buyers Not much Easy sells Smash hits Sure failures Long hauls Behaviour change A lot Low Payoff High Over time, however, successful innovations diffuse amongst users and get widely adopted • Probit adoption – potential users or customers weigh costs and benefits – heterogeneity of preferences measn that different users or customers adopt at different times • Epidemic adoption – adoption limited by availability of information – as potential users and customers become aware of what it does and how to use it, they will adopt • Information cascades and path dependence – a technology becomes established, it works and is better, and its features well known, legitimizing it – once established, network effects take over Diffusion of innovations Rate of adoption Penetration Time Everett Rogers’ segmentation Early majority Late majority # of units bought Early adopters Innovators Adopters differ by resources, values (affinity for risk), knowledge, complementary assets and other factors Laggards Time Everett Rogers identified five product-based factors that governed the rate of diffusion • Relative advantage - the degree to which a product is better than the product that it replaces • Compatibility - the degree to which a product is consistent with the users’ context, in particular their values and experiences • Complexity - the degree to which a product is difficult to understand and use • Trialability - the degree to which a product may be experimented with on a limited basis • Observability - the degree to which product usage and impact are visible to others Geoffrey Moore’s chasm focuses on psychographic characteristics of users or customers Early majority Late majority # of units bought Early adopters Innovators Time Making the transition from early adopters to the early majority of users or customers often requires significant changes in the offer, and new and different competences Laggards As a result, the rate at which new technologies diffuse can vary widely Market Penetration U.S. Households 100% 80 PCs 60 Telephones VCRs 40 Vacuum cleaners 20 0 0 10 20 30 40 50 60 70 Years from Product Launch 80 90 100 Demand opportunity: summary • Customers are heterogeneous • Demand opportunity – future market, where customers meet products – exogeneous change and endogeneous change • Diffusion of innovations – probit - weigh costs and benefits – epidemic - driven by information • Reluctance to change - eager sellers and stony buyers • Rate of diffusion depends on several factors – relative advantage – compatibility and complexity – trialability and observability • Crossing the chasm - mainstream is different to early adopters Together, these two phenomena often result in a characteristic industry life-cycle Early ferment Dominant design emerges Incremental innovation Early mainstream usability, cost more important Mainstream customers soft factors, aesthetics Business Ecosystem Many entrants - diverse business models Decisive battles for leadership Intensifying competition, early consolidation Technological Infrastructure Make it work innovate on performance, diverse integrative designs Figure out the optimal architecture, drive down costs, make it easy to use Demand Opportunity Lead users, early adopters - high payoff, low switching costs Maturity Saturation, segmentation, customization Fierce competition, consolidation around majors and minors Develop broad Broaden the offer, rationalize portfolio, build platforms, the portfolio, search for new build up options complementary assets Eclipse or renewal Dominant design • After a technological Bit-mapped innovation and a display subsequent era of ferment, a basic architecture that becomes the accepted market standard • Dominant designs may not be better than Select alternatives nor innovative • They have the benchmark 12 key features to which keypad subsequent designs are compared 2 soft keys Send and end Digital baseband, firmware The relative speed with which technology and demand co-evolve results in different scenarios Slow Fast Pace of Technological Evolution Pace of Market Evolution Slow Fast Calm Waters The Market Leads Scotch Tape The Technology Leads Digital Cameras Sewing Machines Rough Waters Personal Computers …and determines how likely a business is to be able to achieve first-mover advantage The Situation Your Company Faces First-Mover Advantage Key Resources Required Short-Lived Durable Unlikely Even if attainable, advantage is not large. Very likely Moving first will almost certainly pay off. Very likely Even if you can't dominate the category, you should be able to hold onto your customer base. Likely Make sure you have the resources to address all market segments as they emerge. Large-scale marketing, distribution, and prodction capacity The Technology Leads Very unlikely A fast-changing technology in a slow-growing market is the enemy of short-term gains. Unlikely Fast technological change will give later entrants lots of weapons for attacking you. Strong R&D and new product development, deep pockets Rough Waters Very unlikely There's little chance of long-term success, even if you are good swimmer. These conditions are the worst. Large-scale marketing, distribution, production, and strong R&D (all at once) Calm Waters The Market Leads Likely A quick-in, quick-out strategy may make good sense here, unless your resources are awesome. Brand awareness helpful, but resources less crucial here Technological innovation and the diffusion of innovations cause transitions • Incremental innovation Performance involves relatively Incremental minor changes innovation • Radical Incremental innovation is innovation Ferment based on Dominant different Radical design innovation engineering and scientific Ferment principles Time Incremental and radical innovations have very different competitive consequences Incremental innovation Radical innovation • Introduces relatively minor changes • Happens once dominant design has been established • Typically drives rapid performance improvement • Exploits the potential of the established design • Typically reinforces position of incumbents • Based on a different set of engineering principles • May open up whole new markets and potential applications • Often creates great difficulties for incumbent firms • Can be basis for successful entry by insurgents But sometimes, “…apparently modest changes…” have dramatic consequences Xerox and Canon in small copiers Sony and RCA in portable radios • Pioneers plain paper copiers • In 1970’s competitors win share with much smaller, more reliable copiers • Little new scientific or engineering knowledge • But Xerox takes ~8 years to launch competitive product • …and it loses 50% of its market share • Mid-1950’s RCA develops prototype portable radio • Sony- small new insurgent uses transistorized radio to enter US market • Sony’s radios produced with technology licensed from RCA • But RCA doomed as a follower, can’t match Sony Two different sorts of knowledge: component or modular; architectural or integrative Component Architectural • Knowledge about each of the core design concepts • How they are implemented in a particular component within a product • Specialized and focused, can be mastered by an individual or a small team • Constant focus once dominant design established • Radical change obvious • Knowledge about ways in which components link together into coherent whole and are interdependent • Tends to become embedded as tacit knowledge • Communication channels, information filters and problem-solving strategies • Shift may not be apparent A framework for thinking about different types of innovation and the resulting transitions Changed Modular Innovation Radical Innovation Incremental Innovation Architectural Innovation Reinforced Overturned Linkages and interdependencies amongst core concepts and components Unchanged Core concepts Architectural innovation and the consequences of transitions in semiconductor capital equipment Generation Firm 1 2 3 Contact Proximity Scanner 4 5 Step and Step and Repeat (1) Repeat (2) Nikon 70 GCA Perkin-Elmer Canon 67 Kasper 17 Cobilt 44 8 55 12 78 10 <1 21 9 Difficult transitions also happen when technological innovation outstrips the demand opportunity Performance ry ctogy e j ra o e t ol nc techn a rm t rfo sen ers Pe pre ding custom Most-deman of Disruptive technology Ne w per for m e anc tra j -demanding ory Least ect Time } customers Performance that customers in the main-stream market can absorb Disruptive technologies have two key characteristics • Products and services that embody these technologies in their early stages have attributes that make them unattractive to incumbents’ current mainstream customers, and typically appeal only to small and emerging markets or segments, and offer inferior returns BUT • These technologies have the potential for rapid innovation along trajectories that will in future enable products and services that are attractive to incumbents’ mainstream customers, allowing insurgents to later invade established markets and displace the incumbent Three things are needed for these technologies to empower insurgents and threaten incumbents Investment Innovation trajectory • Even though products and services that • The innovation trajectory embody these for these technologies technologies are evolves in the right unattractive to direction and fast enough incumbents’ current to meet the evolving mainstream requirements of the customers at the incumbents’ current outset, insurgents mainstream customers perceive sufficient demand opportunity to fuel investment and innovation Indifference • The demand opportunity represented by incumbents’ mainstream customers is evolving along a different trajectory than can best continue to be met using incumbents’ sustaining technologies Disruptive innovations in disk drives How Disk-Drive Performance Met Market Needs 4000 2000 700 500 400 4" n1 di e id s rov ive y y p dr ded b cit ester a eman puter users p city d Ca inch Capa frame-com W main 200 ed 100 70 50 40 5 4 ity ac p Ca A 7 s ive dr vid 20 10 i " n8 rs o pr d nde by use C in apa 3. cit 5" y dr pro iv vi es de d 1000 Hard-Disk Capacity (MB) • An alternative explanation – could have mastered the architectural transition – but novel technologies did not meet needs of current customers • Response to transition depends on technical knowledge and on the perceived demand opportunity, business model and capabilities a dem d ed e d and id de ov es demers C an y t m pr driv i s de rs Capac by u ty ci 5" ty se pa 5.2 aci y u C Ca in Cap b city apa Point at which hard-disk drives invade minicomputer B market Point at which hard-disk drives invade personal-computer market Point at which hard-disk drives invade portable-computer market 2 1 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 Year Each of these generations involved innovation along a new and different trajectory Generation 1 2 3 4 5 14” 8” 5.25” 3.5” 2.5” Demand MiniDesktop Portable Mainframe opportunity computers computers computers Leader(s) New attributes CDC Shugart Internal power supplies Smaller Seagate iPods Conner Quantum Higher Rugged density Lightweight Lower unit Low-power cost Tiny Even where incumbents pursue radical innovations, cognitive limitations may doom them • Polaroid was the leader in instant photography • Technology-driven company – long-term, large-scale research • Believed in consumables – “What’s the business model? It’s the razor/blade … so we make money with the film” • Commits to digital imaging – ‘86 Microelectronics Lab – by ‘89, 42% of budget – superior imaging technology • Did not invest in other areas – low cost electronics manufacturing – rapid product development – new marketing and sales • Takes long time, capabilities erode, people leave The evolution of capabilities and beliefs at Polaroid 1980 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Pre-1980 Instant camera product and process innovation 1990 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Leading edge digital imaging technologies - microelectronics - lasers 1981-1990 Instant camera product and process innovation Large investments in exploring digital imaging technologies "Printer in the Field" digital camera development Helios medical imaging system Image recorders and scanners 1980 Technology-driven product development Value of large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model 1990 Market-driven product development Value of large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model 1998 Instant film technology Manufacturing: Thin film coating and precision electronics Mass market distribution Diminshed digital imaging technological capability 1991-1998 Instant camera product and process innovation Smaller investments in exploring DI technologies - sale of microelectronics lab & Helios Digital camera (without printer) development Image recorders and scanners 1998 Market-driven product development No value in large-scale invention Value of an instant print Value of "photographic" quality Razor/blade business model Organization response to transition ultimately depends on four key factors Demand opportunity who your customers are and what they want Business ecosystem your chosen niche, its business model and hence how you make money Technological infrastructure explicit and tacit component and architectural knowledge Your mental models - beliefs about the future, about how to make money, communication channels, information filters and problemsolving strategies Co-evolution, life-cycles and transitions: summary • Co-evolution of technological innovation and diffusion creates life-cycles • Key transition is emergence of dominant design • Different types of transitions – incremental vs radical – modular vs architectural • Disruptive technologies – initially unattractive to incumbents’ mainstream customers – rapid innovation along trajecotry that makes them attractive so insurgents can invade High-tech businesses are built on systems, which co-evolve with business ecosystems • “…new products are rarely stand-alone items. Rather, they are components of broader systems or architectures”1 • “…co-evolution [is] a process in which interdependent species evolve in an endless reciprocal cycle, in which ‘changes in species A set the stage for natural selection of changes in species B’- and vice versa”2 • “The organization of firms and industries and the architecture of products are interrelated.”1 • “Indeed, harnessing the full potential of the technology necessarily involves cooperation amongst industry participants, many of whom might also be competitors.”1 High-tech businesses are built on systems, which involves business ecosystems • Products part of larger and more complex systems • • • • Performers Media companies Personal computing Browsers, ISPs • Apple • Products are comprised of multiple (sub-)systems • Cases, headphones, docks, cars • Software vendors • Component vendors Industries vs business ecosystems, business ecosystems vs biological ecosystems Industry • Stable structure and boundaries – SIC codes – mature • Same customers • Same suppliers • Similar scope of activities • Same business models • Horizontal competition amongst like competitors Business ecosystem Biological ecosystems • Innovation • Dynamic and evolving • Unclear and fuzzy boundaries • Very different scope of activities • High degrees of specialization • Participants depend on one another for their effectiveness and survival • Stable inputs(?) • Dynamic and evolving • Unclear and fuzzy boundaries • Very different scope of activities • High degrees of specialization • Participants depend on one another for their effectiveness and survival Ecosystems go through stages, co-evolving with technological innovation and demand opportunities Early ferment Demand Opportunity Lead users, early adopters - high payoff, low switching costs Business Ecosystem Birth Many entrants - diverse business models Technological Infrastructure Make it work innovate on performance, diverse integrative designs Dominant design emerges Incremental innovation Early mainstream usability, cost more important Mainstream customers soft factors, aesthetics Maturity Saturation, segmentation, customization Expansion Leadership Fierce Decisive Intensifying competition, battles for competition, consolidation leadership early around majors consolidation Figure out the optimal architecture, drive down costs, make it easy to use Eclipse or renewal Develop broad Broaden the offer, rationalize portfolio, build platforms, the portfolio, search for new build up options complementary assets Self-renewal Ecosystem maps: Architectural; Business; and Chronological Architectural map Business map Chrono-logical map A B C Content Application How things work, roles Contributions of individual participants or business elements “You are here and there are your neighbors” Basic education about the STRUCTURE of the business, roles and niches, and who its competitors and complementors are Participants with relative share, at a Illustrate relative SCALE or strength of a point in time business, its competitors and Optionally, adjacent ecosystems complementors too Can demonstrate ecosystem invasion “Who’s doing well” Detailed ecosystem changes (or events) over time Activity compared with competitors Evolution trajectory “What’s going on” Show historical or potential DYNAMICS in the ecosystem Benchmark against competitors; show strategic intent Help plan for strategic goals Technology Strategy A: players or roles on a plane with dimensions that illustrate contributions, locations and relationships A Architectural map Money flows down Logical hierarchy or Scope or Adjacent ecosystems We nearly always use hierarchy on vertical axis Horizontal axis – physical topology, showing what is next to what, is most common Role or players activity Relationships are usually implied by role Physical topology or “Wiring diagram” or Geography or Value chain This model sometimes helps the choice of dimension and direction for axes Technology flows up B: relative strength of players on horizontal axis, value capture on the vertical axis B Business map Unlike type A charts, type B differentiate strength of player in a given role Hierarchy or Value web or Other We nearly always use hierarchy on vertical axis, sometimes with nested detail Player Player Adjacent Ecosystem width shows share Share/strength and Ecosystem Horizontal axis always shows relative share We optionally show adjacent ecosystems too i 15.905 Technology Strategy User Government Large Enterprise Medium Enterprise Small Enterprise Home Application Customer Offer Service Provider Lu’s Offer Network Operator Lucent Technologies Professional Services nortel microsoft Huawei Technologies Application nokia Packet Next Gen Ethernet Sony ericsson sony Cisco systems alcatel motorola Circuit Legacy TDM Device Mobility Optical Access Enterprise Home CE PC Gateway Desktop Server Storage Satellite Coax Copper Metro Submarine Core CDMA GSM UMTS 3G 1/2 Broadband Smart Feature IPR Voice $ motorola motorola 15.905 Technology Strategy Mobile business ecosystem and dynamics Consolidation continues as MNOs look to reduce costsData Demand Opportunity Europe+ Europe+ NAR Voice NAR JP+Kor ea JP + China + India Korea China + India Spending Units RoW RoW Consumer SME Advanced economies maintain share of value as share of units declines Enterprise Device Business share of spending rises Service providers Regional Operators Global Operators Network operators GSM WCDMA Entertainment WiMax still niche Browsing Others Proprietary Platform Nokia Samsun g Nokia ODMs (Jabil Circuit, BenQ) Samsung ODMs (Ability) Motorola LG Siemens S E Sanyo NEC Panason Kyocera ic ODMs/EMS share of production rises to 50% of all handsets by 2009 Other s ODMs HH ODMs Electronic Assemblies Mechanical BREW Battery Other VM CDMA 1xEV-DO GSM/GPRS/EDGE CDMA 1xRTT Value migrates from hardware to software; further HW component commoditization Other WCDMA Nativ e Java downloadable Display Final assembly Application Techn(olog)ical RTE architectureAir interface Smart Handheld Device Windows Device Mobile devices production Java applications Components/ gain share Modules Linux Device marketing Retail and and design wholesale Messaging Symbian Device Platforms/ platforms Architects (software) CDMA Enterpris e begins Applications to take market (software)share CDMA loses share; Korea flips to WCDMA Other Mobile and converged Infrastructure infrastructur Open source/Linux e National Operators Michael A M Davies 9 May 2007, Page 57 Not to scale B Mobile Business Ecosystem Business scale – share of 2005 15.905 spending Technology (estimated) Europe+ North America North America JP + Korea China + India Strategy RoW China + India Share of spending RoW Share of units SME Europe+ JP + Korea Spending on mobile devices, voice and data services Data Demand Opportunity Voice Consumer Enterprise Device Vodafone NTT DoCoMo T-Mobile Orange TIM Telefonic a Service providers Global Operators O2 Regional Operators MTN, Orascom, TDC MTC, Millicom, AmericaTelia MovilSonera Telenor KPN Mobile Cingular Telstra, PT, Singtel Verizon Sprint/Nextel National Operators China Mobile China Unicom SK Telecom Share of revenue Other Network operators Ericsson Device production Mobile devices Alcatel Nortel O Motorol th a er Ericsson WCDMA Nokia Siemens O th Nortel er s Lucent CDMA Nortel Motorola Al O Eri Sams c th css ung at er on el s Nokia 31% Samsung 14% Nokia ODMs (Jabil Circuit, BenQ) Samsung ODMs (Ability) High, medium and low range devices OS Platform Highmedium range devices Medium, some low range devices High range devices Motorola 16% LG 8% Motorola ODMs (HTC, BenQ, Chi Mei) LG ODMs (Lite-on) Siemens 7% Siemens ODMs (Flextronic, Chi Mei) SE 6% Kyocera Panasonic NEC Others SE ODMs Other ODMs (Arima, (Dbtel, Quantra, Yuhuatel, CECW, Cellon) Flextronic) Display Mechanical Java downloadable BREW Smart PalmOne HPRIM Others Handheld Device Nokia HH ODMs (HTC) Battery Other VM Share of revenue Final assembly Electronic Assemblies Native C D M A 1 x E V D O Other CD MA 1xR TT GS W M/G C D PRS M A /ED GE Air interface High range devices, some medium Sanyo Application RTE High, medium and low range devices Share of revenue Application software Proprietary Platform Components/ Modules Techn(olog)ical architecture Siemens Others Retail and wholesale Nokia Windows Linux Platforms/Architects Device marketing GSM Symbian Infrastructure and application software Michael A M Davies 9 May 2007, Page 58 Share by # products downloaded Share of devices, weighted by the type of device B Mobile Business Ecosystem Business scale – share of 2010 15.905 spending Technology (estimated) Europe+ Europe+ North America North America JP+Korea JP + Korea China + India Strategy RoW China + India Share of spending RoW Share of units Data Demand Opportunity Consumer Voice SME Spending on mobile devices, content and service Enterprise Device Service providers Regional Operators Global Operators National Operators Share of revenue Application software Share of revenue Network operators Infrastructure and application software GSM NEC Sanyo Smart Handheld Device Mechanical BREW Battery Other VM Others Display Final assembly Java downloadable HH ODMs C CD D M M A A 1x E 1x V- RT D O T Native Michael A M Davies 9 May 2007, Page 59 Other Air interface OS Platform ODMs Electronic Assemblies Application RTE SE Kyocera Samsung ODMs (Ability) GS M/ W C GP D RS M /E A DG E Techn(olog)ical architecture Nokia ODMs (Jabil Circuit, BenQ) Siemens Panasonic Components/ Modules Samsung LG Linux Mobile devices Nokia Motorola Windows Device production Proprietary Platform Symbian Retail and wholesale CDMA Oth ers Platforms/Architects Device marketing WCDMA Share by # products downloaded Share of devices, weighted by the type of device So, business ecosystems involve related choices about niche and strategy • Leader or keystone/dominator role or niche versus secondary or follower role or niche (so-called niche) – leaders shape architecture - how components, and hence companies, fit together – leaders invest in platforms to improve overall system performance or economics of others – secondary or followers occupy niches defined by leaders or keystones • As a leader, key trade-off between creation and capture – how much to share, to grow overall ecosystem – how much to do oneself - scope of activities – bigger pie, smaller slice vs smaller pie, bigger slice Business ecosystems: summary • High-tech products rarely stand-alone – made up of (sub-)systems – part of systems • Duality of mapping between systems architecture and structure of business ecosystems • Involve business ecosystems – inter-related businesses – co-operation and competition = co-opetition • Evolve through stages • Offer niches – leader - shape evolution, broad scope, integrators, invest in platforms – follower - occupy niche, specialist Performance depends on competition both between ecosystems and within ecosystems Operators GSM CDMA Cellphone vendors Infrastructure vendors Technology businesses, in ecosystems, must capture value, just as much as create value Challenge • Need complements, and hence complementors, to construct a complete offer • Most players have broad range of possible activities • In high-tech, many activities draw on similar underlying skills • Innovation is typically rapid, eroding leadership Capture • Complementary assets – unique manufacturing capacity – brand – channels • Knowledge assets – patents, copyright – trade secrets – tacit knowledge The resource-based view explains how a company’s resources drive its performance • “Companies are very different collections of physical and intangible assets and capabilities. No two companies are alike because no two companies have had the same set of experiences, acquired the same assets and skills, or built the same organizational cultures.” • Substitutability – not trumped by something different • Superiority – distinctive competence – better than competitors from customers’ perspective • Inimitability – hard to copy • Durability – does not depreciate quickly • Appropriability – bound to the business • Dynamic capabilities OK, so where does inimitability come from? • Physical uniqueness – real estate location, mineral rights – unique manufacturing assets(?) – location, location, location • Path dependency – because of what has happened in their accumulation – must be built up over time – brand name • Causal ambiguity – cannot disentangle what it is or how to re-create it – organizational capabilities For technology businesses, knowledge assets (intellectual property) are critical to value capture • Patents – disclosed information about novel and useful invention – legal monopoly for a fixed period of time • Copyright – exclusive rights to the execution of a design, such as an innovation • Trade secrets – protect covered secrets in perpetuity – misappropriation is theft • Trademarks – right to use a distinctive sign to identify offer • Tacit knowledge – can be basis for distinctive competence – difficult to articulate in a way that is meaningful and complete – slow and costly to transmit – ambiguous, needs face-to-face communication, prone to errors of interpretation – often contextually dependent – may be causally ambiguous: “so complex that the firm itself, let alone its competitors, does not understand them” Key to value capture is focus on locus of value • “… the virtuous virtuals have carefully nurtured and guarded the internal capabilities that provide the essential underpinnings of competitive advantage… they invest considerable resources to maintain and extend their core competences [because without them] their strategic position in the network would be short-lived” • “Attractive profitability seems to flow … to the point at which unsatisfied demand for functionality, and therefore technological interdependency exists.” Amdahl’s Law: “…make the common case fast…” • Amdahl’s Law is concerned with the speedup achievable – from an improvement to a computation – affects a proportion P of that computation – where the improvement has a speedup of S “God grant me the serenity to accept the things I cannot change (much); courage to change the things I can (a lot); and wisdom to know the difference.” In mobile devices, all of majors outsource much of their work, limiting basis for differentiation Handset COGS, global, 2005 ($ billions) Foxconn has the RAZR, the W220 and is expected to get the Motofone Nokia Motorola SE Other OEM 18.5 15.2 7.2 MOT3.7 Foxconn 15 80% Foxconn 2.0 NOK 19 3.7 Elcoteq Fox 0.6 FlexSE 0.5 7 Arima 0.7 26.0 Flextronics 1.5 Elcoteq 1.3 Other Celestica 0.7 26 Other MS 2.7 70% Celestica 1.0 100% 90% Compal made 25% of Motorola’s handsets – but most were low-end, low cost Compal 0.2 Compal has little apart from Motorola Flextronics 3.2 60% Compal 1.1 50% In-house 5.5 40% In-house 12.6 In-house (or unknown) 19.5 30% In-house 7.2 20% 10% 0% 0% Nokia only outsources low end and CDMA 10% 20% 30% 40% 50% Sony Ericsson mostly outsources low end Sources: SinoPac; Nomura; ABN Amro; KGI; Yuanta; Ericsson company reports 60% 70% 80% 90% 100% Sony Ericsson has added Compal in 2006 Despite importance of collaboration, still large differences: Nokia keeps clear leadership Nokia 1110 Standby time Motorola C138 Up to 380 hours Up to 300 hours Up to 5 hours Up to 7.5 hours GSM dual band (900/1800 and 850/1900 versions) GSM dual band (900/1800) Weight 80g 81g Volume 78cc 94cc 104 x 44 x 17 mm 100 x 45 x 21 mm 96 x 68 mono 96 x 65 mono Removable covers, MP3 grade, multiple language, speaker & jack Headset jack SMS, EMS (picture messaging) SMS, EMS Games, polyphonic ring, speaking alarm, stop watch, icon menu Games, ringtones, alarm clock, calculator, stop watch 200 entry phonebook SIM only $29.45 $34.91 $60 to $75 Around $50 Talk time Technology Dimension Display Other features Messaging Personalization Call management Manufacturing cost Retail price Sources: Nokia and Motorola website and company documents, Portelligent, CSFB Feature set and cost comparison: • Nokia 1110 phone beats the Motorola C138 on most key measures that matter to customers: 9 27% more standby time 9 removable covers 9 speakerphone 9 polyphonic ringtones 9 200 entry phonebook 9 17% smaller and 20% thinner 8 33% less talk time Nokia has 15% cost advantage from investing in research to lower the costs of three key chips Architecture teardown and cost comparison: Nokia 1110 and Motorola C138 Cost comparison for 3 key chips Motorola $10.58 Nokia $6.90 delta $3.68 LCD Keypad Nokia Tx/Rx switch TI $2.56 Nokia/Infineon $1.56 filter filter GSM transceiver TI $2.3 Audio Power amp Flash TI $5.68 Nokia/TI $3.71 4 Nokia/IST Analog baseban $1.6 3 d Digital baseban d process or process or SRAM Power amp Crystal oscillator Nokia RFMD Nokia has SRAM built into the digital baseband processor, Motorola does not Vibrator Microphone Crystal Nokia has Tx/Rx switch and power amplifier combined, Motorola’s is separate SIM Motorola Sources: Motorola website and company documents, Portelligent, CSFB, Endeavour Partners analysis Value capture: summary • Co-opetition: cooperation and competition – vertical competition amongst complementors – diverse strategies, niches and scope of activities • Complementary assets – reputation • Knowledge assets – patents, copyright – trade secrets, tacit knowledge • Inimitability – physical uniqueness – path dependency – causal ambiguity • Focus on locus of value High-tech businesses are built on systems, with interfaces, which may be standards • Products part of larger and more complex systems • Products are comprised of multiple (sub-)systems • Systems are comprised of sub-systems and components • Sub-systems and components are integrated, made compatible, through interfaces • Interfaces can be customized or standardized, as compatibility standards ZigBee Image removed due to copyright restrictions. “…an “…an association association of of companies companies working working together…” together…” “…to “…to enable enable … … products products based based on on an open global an open global standard…” standard…” “…providing “…providing interoperability interoperability and and conformance conformance testing testing specifications…” specifications…” Z-Wave Alliance “…an “…an open open consortium consortium of of manufacturers…” manufacturers…” “…who “…who build build products products based based on on Z-Wave…” Z-Wave…” Image removed due to copyright restrictions. “…stringent “…stringent conformance conformance test test to to assure … complete assure … complete interoperability interoperability with with all all other other devies devies and and controls…” controls…” “…allow “…allow all all products products from from all all members to members to interoperate interoperate seamlessly…” seamlessly…” ZigBee and Z-Wave are battling each other, albeit with different strategies… Z-Wave Alliance ZigBee Alliance • • • “The ZigBee Alliance is a global ecosystem of companies creating wireless solutions for use in residential, commercial and industrial applications” “[It] comprises technology providers and original equipment manufacturers worldwide. Membership is open to all.” “…the only wireless standards-based technology: – • that addresses the unique needs of remote monitoring & control, and sensory network applications – enables broad-based deployment of wireless networks with low cost, low power solutions – provides the ability to run for years on inexpensive primary batteries for a typical monitoring application” “Initial markets – Home Automation – Building Automation – Industrial Automation” • • • • • “The Z-Wave Alliance members lead the home controls market…” “ …more than 125 companies are developing products that incorporate the Z-Wave technology.” “…Zensys’ Z-Wave technology is the only technology in the market with a true ecosystem of interoperable products that focuses on the home automation segment.” “Unlike competing technologies, Z-Wave-enabled products are readily available from leading consumer brands, giving Z-Wave a significant time-to-market advantage “Recent findings…have confirmed existing doubts about the viability of wireless control products based on IEEE 802.1.5.4, such as those from the ZigBee community… [and] clearly demonstrated that… products using 15.4 technology are seriously compromised and often inoperable even within the most basic residential” [Compatibility] standards have been around a long while: railroad gauges in the 19th century • Standard gauge 4’ 8½” – George Stephenson – built the Stockton & Darlington Railway – the Rocket • broad gauge 5’0” – American South – Finland • broader gauge 7’0¼” – Great Western Railway Standards battles have been going on for a long while • • • • Electric Power Roads Color Television Air travel • • • • • • • • Video cassettes Cellphones (1) Personal computers 56k modems • • • • • Cellphones (2) • • Documents • DC (Edison) vs AC (Westinghouse) Width, side of the road, signage Mechanical (CBS) vs electronic (RCA) Door on front left, jetways/airbridges, taxi ways Betamax (Sony) vs VHS (Matsushita+) Several co-existing standards Windows vs MacOS K56flex (Rockwell/Lucent) vs x2 (US Robotics/3Com) vs v.90 TDMA (Ericsson/AT&T) vs CDMA (Qualcomm) vs GSM (EU+) vs PHS PDF (Adobe) vs Reader/ (Microsoft) What triggers standards battles, and what are the outcomes? • How important are network effects, how much consumers value broad compatibility • Two (or more) businesses or business ecosystems vying for dominance • Tipping – “fight to the death” • Truce – convergence – comprise • Two (or more) – no tipping – duopoly or oligopoly If network effects, so-called network externalities, are important, adoption may tip 100% Likelihood next customer chooses to adopt A Metcalfe’s Law: Value ∝ n(n-1) = n2 - n 0% 0% A’s share 100% of current adoption - the installed base • Direct or real networks – people I can talk to – content I can use – places I can go • Indirect or virtual networks – software and hardware – development communities – complements Types of compatibility standards Open Although details of standard are published, owner(s) controls evolution and may capture value • Windows • SD cards Standards are publicly owned or held in common • TCP/IP • GSM Information Closed Interfaces amongst subsystems, modules or components are standardized, but not published externally • IBM 360 series • Apple Standards publicly owned or held in common, but kept secret • cryptography • GSM secret keys Proprietary Control Public In practice, the extent of control and the availability of information are both a continuum Open PDF Z-Wave ZigBee Linux GSM CDMA Symbian Information IBM360 Closed Proprietary Control Public And each type of standard has distinct advantages and disadvantages Open Time to market Support Performance Information Closed As user, As producer, value capture value by capture for owner owner Proprietary Control Public Technology envelopes and trade-offs • Adopters face a trade-off between better performance and the payoff from network effects Compatibility Performance Types of standards battles Incompatible Evolution vs revolution Rival revolutions Rival evolution Revolution vs evolution Rival’s Standard Compatible Compatible Your Incompatible Standard Key assets in standards battles • Prior adoption – installed based from previous era – helpful with evolution strategy • Technological innovation – deliver superior performance – helpful with revolution strategy • Timing, being first-to-market – get there early, establish momentum, learn • Intellectual property rights – Qualcomm’s patents for CDMA • Strength in complements – influence overall system level performance • Reputation – credibility, players expectations are that you will win… so you are more likely to Two key strategems for standards battles • Pioneering - pre-emption – just do it – pioneer an early lead so that positive feedback works for you – early entry - with associated trade-offs and risks – penetration pricing which needs to be recouped • Prosletizing - expectations management – convince players that you will win – vaporware – “predatory product pre-announcements” – assembling alliances, announcing adoption – fear, uncertainty and doubt - FUD Standards forums - let’s go shopping! • What are the costs involved in participation? • Who are the participants? – incumbents or insurgents – customers or producers • What is the intellectual property regime? – disclosure and licensing - what is “reasonable” – rights held by non-participants • What is the process by which decisions are made? – consensus – voting • How is compliance enforced? Interesting standards battles going on today • Low-power wireless • ZigBee vs Z-Wave (Zensys) vs ISA-SP100 • Symbian (Nokia and others) vs • Mobile OSs Windows Mobile (Microsoft) vs Linux • Mobile TV • MediaFlo (Qualcomm) vs DVB-H vs DMB • Web content • Flash (Adobe) vs Silverlight (Microsoft) • High definition • Blu-Ray (Sony) vs HD-DVD (Microsoft) content • OpenDocument vs • Documents OpenOffice XML (Microsoft) • WiMAX vs IEEE 802.20(?) vs LTE • Mobile broadband It can get ugly… and expensive (particularly once the lawyers or the government get into it) • Qualcomm’s tactics in mobile broadband – August 2005 pays $818 million for Flarion – September 2005 revives 802.20, proposes OFDM-based technologies – June 2006, IEEE suspends 802.20 at Intel and Motorola’s instigation – Chairman had not disclosed that he is a consultant for Qualcomm – ~20 paid consultants voting as a bloc • Qualcomm in deathmatch over 3G – royalties of ~5% on its CDMA, with >80% of the patents, generating ~$2.5 billion per year – wants ~5% on W-CDMA (vs ~3% incumbents pay), <20% of patents – in litigation with Broadcom and Nokia • Rambus found by FTC to have deceived JEDEC about its patents – amended its patent applications to extend their scope – tried to charge a royalty rate of 3.5% • Microsoft in a stand off with EU – unreasonably high prices for Windows Server Protocol Program – threatened with “structural separation”, fines of €3 million per day (Compatibility) standards: summary • Importance depends on power of network effects • Types of standards – open vs closed access to information – proprietary vs public control • Adopters trade-off – performance – compatibility • Standards battles – compatible vs incompatible – revolutionary vs evolutionary • Strategems for standards battles – pioneering – prosletizing Modularity is becoming more prevalent, increasing value creation, challenging value capture • Falling costs of co-ordination make modularity easier • Modularity, where it can be employed effectively, can accelerate value creation – once dominant design established, hence stable architecture and modular interfaces – and ultimate performance is not critical – autonomous or modular innovations, in this context • Very challenging for value capture – loss of control for leaders – rapid, diverse innovation – revenues and value widely dispersed Modularity Æ decoupling • “When a product or process is ‘modularized,’ the elements of its design are split up and assigned to modules according to a formal architecture or plan.” • “From an engineering perspective, a modularization generally has three purposes: – to make complexity manageable – to enable parallel work – to accommodate future uncertainty” Product Architecture Integral FUNCTIONAL ELEMENTS COMPONENTS Modular FUNCTIONAL ELEMENTS COMPONENTS Protect cargo from weather Upper half Protect cargo from weather Box Connect to vehicle Lower half Connect to vehicle Hitch Minimize air drag Nose piece Minimize air drag Fairing Support cargo loads Cargo hanging straps Support cargo loads Bed Suspend trailer structure Spring slot covers Suspend trailer structure Springs Transfer loads to road Wheels Transfer loads to road Wheels Interfaces Modular Interdependent/ Systemic/Integral • Customer understands and can specify key parameters • Can be measured and tested reliably and unambiguously • Understand how variation affects system performance • Market can function effectively • Codified knowledge • Difficult to protect • Associated with optimizing design for ultimate performance • Unstructured technical dialogue • Necessary information for market does not exist • Management and integration most efficient coordinating mechanisms IBM System/360 • First modular computer, conceived as a family of computers – different sizes suitable for different applications – same instruction set – standard interfaces for peripherals • Design rules and decentralized development – Central Processor Control Office defines rules – each team full control over hidden elements • Wildly successful, drove other players out of the market • BUT undermined IBM’s dominance in the long run through emergence of plug-compatible modules There are six modular operators that together enable a very wide range of system designs Splitting Separating systems into modules that interact across well defined interfaces Substituting Switching between components that perform the same function Augmenting Adding a module to increase the functions of the system Excluding Removing a module to reduce the functions the system can perform Inverting Making an embedded function into a stand-alone module Porting Moving a module from one system to another The resulting systems can exhibit several different types of modularity Slot Component Swapping Direct Component Sharing Bus Bus Strategic options Architect • For system innovations, may require broad scope of activities at the outset • Create design rules, define visible information • Convince people this architecture will prevail • As modularity established, lead the evolution of the business ecosystem Module player • Conform to the architecture, interfaces and test protocols established by others • Master the hidden information involved • Rely on superior execution Modularity: summary • Modularity when and if: – performance not critical – dominant design established • Accelerates value creation, makes value capture tough • Focus on locus of value – bottleneck, constrains overall system performance – build inimitable capabilities and core competences Effective decision-making involves conflict challenging leads to better decisions • Incomplete and ambiguous information • Uncertainty – how customers will respond – innovation trajectories – how co-opetition will play out • Limited time • Wide range of options • “Management teams whose members challenge one another’s thinking develop a more complete understanding of the choices, create a richer range of options, and ultimately make the kinds of effective decisions necessary in today’s competitive environments” How can you make good decisions, when conflict is likely? Common goals • collaborative problem solving • inquiry rather than advocacy Context Balanced power • value diversity • cultivate minority views • fair process • leverage expert counsel Focus on issues • not a slow regular (annual) cycle • not by organizational (business) unit Agenda Debate and decide • not review and approve • facts, options and choices • More, rather than less, objective and timely information, focus on the facts • Consider several (>2 ➔ ~4-5) options together • Make sure strategic decisions consistent with one another and with execution Make it fun! • inject humor into the process Outcome Resolution without consensus • collective ownership • dissent and revisit As a key part of focusing on the facts, recognize and embrace uncertainty A range of possibilities • sensitivity analysis • Monte Carlo Clear future • single point forecast Increasing uncertainty A1 A A2 B B A few discrete scenarios • real options • game theory True ambiguity Types of uncertainty Discrete scenarios • • • • • • Does it work? Does anyone buy it? Competitor entry Collaborator partnership Patent litigation Standards battles A range of possibilities • Innovation trajectories – performance – cost – timing • Pricing • Adoption rates and ultimate penetration Three basic types of decision, with increasing risks and levels of commitment No-regrets No-regrets moves moves (Real) (Real) options options Big Big bets bets •• worth worth doing doing anyway anyway •• positive positive payoffs payoffs in in most scenarios most scenarios •• positive positive payoff payoff in in some some outcomes outcomes •• otherwise, otherwise, small small cost cost to to play play •• parallel parallel or or sequential sequential •• work work in in some some scenarios scenarios •• high high cost, cost, negative negative effects in other effects in other cases cases X Y A1 ✓✓ ✓ A1 A A A2 B B ✓ ✓ A2 ✓ ✓✓ B Increasing Increasing risk risk Increasing Increasing investment investment and and commitment commitment B $£€¥ What you do about real options, and when depends on value to cost, and on volatility >1 Value to cost Now Maybe now Likely later 1.0 How much things can change • variance • time horizon Maybe later Never Likely never 0.0 Volatility Low High Active management management Active Net present value, taking into account time value of being able to postpone the decision For high-tech businesses, timing - and hence (active) waiting - is critical to success • High-tech involves volatility – innovation – diffusion – co-evolution • Steady stream of small and medium-size opportunities • A few golden opportunities or lifeand-death threats • Anticipate – analyze – reconnoiter • Prepare – build resources – create options • Commit – make the big bet Decision-making: summary • • • • • • • Conflict inevitable, challenge valuable Common goals and balanced power Focus on facts, debate and decide More objective and timely information Consider several options together Strategic decisions consistent with each other and with execution Embrace uncertainty – range of possibilities – discrete scenarios • Real options – value to cost – volatility • Active waiting Strategy and technology Demand opportunity • segments • behaviour change • diffusion and adoption • chasm Technological infrastructure • architecture • parameters • envelope and trade-offs • innovation trajectory Co-evolution & transitions • episode, era • dominant design • radical vs incremental • architectural vs modular • disruptive Business ecosystems, value creation and value capture • niche • lead/follow • co-opetition • inimitability • focus on locus of value • standards • modularity Decision making • common goals, balanced power • focus on timely, objective facts • embrace uncertainty • several options Framework Customers Demand Opportunity Underlying drivers of time behaviour (dynamics) • customers and applications (vs products) • activities and processes (vs organization) Connections or linkages, feedback loops (+ and -) Applications or Outcomes Markets Offer Partners Operations Marketing Innovation Management Business Ecosystem Technology Partners Technological Infrastructure Value Creation versus Value Capture y Step changes Turning Points t Trajectory shifts (disruption) t x Time Architectural Shifts Questions and quotations • OK, it’s cool technology, but will it really be any better in customers perception, when we finally get it to work? • Why on earth should I bother with the hassle and anxiety of trying to figure this &*!% out? • “Show me the money!” • “Any sufficiently advanced technology is indistinguishable from magic” • How do I get to be Switzerland, rather than Belgium? • Where’s the bottleneck - and what can we do that customers care about, better than the other guys, that they can’t copy? Theory 1. a belief or principle that guides action or assists comprehension or judgment1 2. a set of statements or principles devised to explain a group of facts or phenomena, especially one that has been repeatedly tested or is widely accepted and can be used to make predictions about natural phenomena1 3. a well-substantiated explanation of some aspect of the natural world; an organized system of accepted knowledge that applies in a variety of circumstances to explain a specific set of phenomena Technology 1. electronic or digital products and systems considered as a group 2. a technological process, invention, method or the like 3. the practical application of science to commerce or industry 4. the branch of knowledge that deals with the creation and use of technical means and their interrelation with life, society and the environment 5. the sum of the ways in which social groups provide themselves with the material objects of their civilization Strategy 1. a plan, method or series of maneuvers or strategems for obtaining a specific goal or result 2. the science and art of military command as applied to the overall planning and conduct of large-scale combat operations 3. the art or skill of using strategems in endeavors such as politics and business Domain 1. a knowledge domain that you are interested in or communicating about 2. a field of action, thought or influence 3. a realm or range of personal knowledge, responsibility and so on2 4. a sphere of activity, concern or function; a field Parameter 1. one of a set of measurable factors…that define a system and determine its behaviour… 2. a factor that restricts what is possible or what results 3. a distinguishing characteristic or feature Envelope 1. the technical limits within which an aircraft or electronic system may be safely operated 2. the maximum operating capability of a system (especially an aircraft) Trade-off 1. the exchange of one thing for another of more or less equal value, especially to effect a compromise1 2. an exchange of one thing in return for another, especially relinquishment of one benefit or advantage for another regarded as more desirable1 Era 1. a period of time marked by distinctive character, events and so on1 2. the period of time to which anything belongs or is to be assigned1 3. a period of time as reckoned from a specific date serving as the basis of its chronological system2 Epoch 1. a period of time marked by distinctive character, events and so on 2. the beginning of a distinctive period in the history of anything 3. a point of time distinguished by a particular event or state of affairs 4. a notable event that marks the beginning of a period of history, especially one considered remarkable or noteworthy Episode 1. a portion of a narrative that relates an event or a series of connected events and forms a coherent story in anf of itself 2. an incident in the course of a series of events Some terminology for timelines and transitions Epoch applies Era Era to the beginning of a new period Epoch Epoch marked by radical changes Episode Episode and new developments while era Event applies to the Event entire period Time Era Era Epoch Epoch Episode Episode Event Event Episode Episode (Business) Ecosystem 1. a a system formed by the interaction of a community of organisms with their environment 2. “[a system in which] companies co-evolve capabilities around a new innovation, they work cooperatively and competitively to support new products, satisfy customer needs, and eventually incorporate the next round of innovations” 3. “[a] loose network…of suppliers, distributors, …makers of related products or services, technology providers [that] affect, and are affected by, the creation and delivery of a company’s own offerings” (Business) Niche 1. a situation or activity specially suited to a person's interests, abilities, or nature 2. the position or function of an organism in a community of plants and animals 3. the status of an organism within its environment and community (affecting its survival as a species) Modularity 1. the use of individually distinct functional units, as in assembling an electronic or mechanical system 2. designed with standardized units or dimensions, as for easy assembly and repair or flexible arrangement and use Locus 1. a center or focus of great activity or intense concentration 2. a center or source, as of activities or power